Leslie's, Inc. (LESL) Q1 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reveals significant challenges: a 16% YoY sales decline, reduced gross margins, and a $83 million net loss. Despite cost-cutting efforts, financial performance remains weak, with negative adjusted EBITDA and high debt levels. The Q&A section highlights concerns about pricing strategy risks and lack of concrete plans for store expansion. While there is some optimism about future campaigns, the overall financial health and strategic uncertainties suggest a negative stock price reaction.

Key Financial Performance

Net Sales $147.1 million, a 16% decline year-over-year. Reasons for the decline include a $4 million benefit from hurricane-related sales in the prior year, a $10 million impact from the shift from a 53-week year to a 52-week year, and a $1 million impact from closed stores.

Comparable Sales Decreased 15.5% year-over-year. Approximately 850 basis points of the decline were due to the hurricane-related sales benefit, the 53-week to 52-week year shift, and store closures.

Gross Profit Margin 18.4%, down from 27.2% in the prior year. The decline was due to a 430 basis point impact from a noncash impairment charge on inventory in closed stores and lower margins on core chemicals, partially offset by cost reduction strategies.

SG&A Expenses $85.7 million, a 2% decrease from $87.4 million in the prior year. The decrease was due to lower store labor, corporate payroll, and other operating expenses.

Net Loss $83 million, compared to $44.6 million in the prior year. Adjusted net loss was $48.7 million, compared to $40.7 million in the prior year. The increase in net loss was due to noncash impairment charges and lower gross profit.

Adjusted EBITDA Negative $40.3 million, compared to negative $29.3 million in the prior year. The decline was driven by lower sales and gross profit.

Inventory $210 million, a 23% reduction from $271 million in the prior year. The reduction was due to inventory optimization initiatives and store closures.

Capital Expenditures $4.3 million, compared to $4.7 million in the prior year. The decrease was primarily related to maintenance of stores and distribution centers.

Long-term Debt $752 million, with $25 million of outstanding borrowings on the line of credit, compared to $40 million in the prior year.

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Operating Highlights

Pricing Transformation Initiative: Implemented a new pricing strategy to improve pricing for customers on key items, aiming to drive traffic, increase conversion rates, and build customer loyalty. This includes a national implementation of new low prices supported by an integrated marketing campaign.

Uber Delivery Expansion: Expanded Uber same-day delivery platform to Arizona and California, with plans for a nationwide rollout ahead of the pool season.

Customer Retention and Growth: Focused on reengaging lapsed customers and growing the active customer base through targeted marketing and a revitalized pricing strategy.

Store Optimization: Closed 80 underperforming stores, achieving 80% of closures within 7 days, resulting in an expected annualized net EBITDA improvement of $4 million to $10 million.

Distribution Network Optimization: Closed the Denver warehouse and planned closure of the Illinois facility, reducing annual costs by $1 million to $1.5 million and improving delivery speed and inventory levels.

SKU Rationalization: Reduced SKU count by over 2,000 items, focusing on high-value inventory, expected to deliver $4 million to $5 million in annualized EBITDA improvement.

Field Organization Restructuring: Integrated stores, service, commercial, and trade operations under a unified local management model to enhance customer relationships and operational efficiency.

Transformation Plan: Focused on cost optimization, asset utilization, and customer value proposition to drive sustainable profitable growth.

Marketing Strategy: Launched a targeted marketing campaign leveraging the Pool Perks loyalty database to deliver personalized messages and optimize campaign effectiveness.

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Risk or Challenges

Customer Churn: The company experienced a net loss of 160,000 residential customers in 2025, primarily due to pricing issues. This poses a risk to customer retention and future revenue growth.

Store Closures: Closure of 80 underperforming stores is expected to impact annual sales by $25 million to $35 million, despite projected EBITDA improvements.

Gross Profit Margin Decline: Gross profit margin declined significantly in Q1 2026, partly due to noncash impairment charges and lower margins on core chemicals, which could affect profitability.

Inventory Optimization: Inventory optimization initiatives, including SKU rationalization, may lead to a one-time reduction of 100 to 200 basis points in annualized gross margins, impacting short-term financial performance.

Distribution Network Changes: Closure of the Illinois distribution center and transition to a 5-center network could disrupt supply chain operations and customer service during the transition period.

Economic Sensitivity: The company’s performance is highly seasonal and sensitive to economic conditions, which could impact sales and profitability during the pool season.

Pricing Strategy Risks: The new pricing strategy aimed at improving customer retention may result in a 100 to 150 basis point decline in annual gross profit margins, posing a risk to overall profitability.

Debt Levels: The company has $752 million in long-term debt, which could limit financial flexibility and increase vulnerability to economic downturns.

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Guidance & Outlook

Pricing Transformation Initiative: Implementing a pricing transformation initiative to improve pricing for customers on key items. This includes national implementation of new pricing strategies supported by a marketing campaign to drive traffic, increase conversion rates, and build customer loyalty.

Customer Retention and Growth: Planning to grow the active customer file in 2026 and beyond by reengaging lapsed customers through a targeted marketing approach and optimizing marketing spend.

Store Optimization Initiative: Closing 80 underperforming locations, expected to yield an annualized net EBITDA improvement of $4 million to $10 million by the end of Q2 2026.

Distribution Network Optimization: Transitioning to a more efficient 5 distribution center network in 2026, including the closure of the Illinois facility, expected to save $500,000 to $1 million annually.

Uber Partnership Expansion: Rolling out Uber delivery platform across the United States ahead of the pool season to enhance customer convenience.

SKU Optimization Initiative: Reducing SKU count by more than 2,000 SKUs entering the 2026 pool season, expected to deliver $4 million to $5 million in annualized EBITDA improvement.

Field Organization Restructuring: Implementing a market leadership model that integrates stores, service, commercial, and trade operations under unified local management to drive transaction growth and higher order values.

Full Year Guidance for Fiscal 2026: Reaffirmed full year guidance for net sales at $1.1 billion to $1.25 billion and adjusted EBITDA in a range of $55 million to $75 million.

Gross Margin Impact: Pricing investments expected to cause an approximate 100 to 150 basis point decline in annual gross profit margins for fiscal 2026.

Cost Savings from Store Closures: Store closures expected to generate a net EBITDA improvement of $4 million to $10 million annually once fully completed.

Distribution Center Closure Savings: Closure of the Illinois distribution center expected to reduce annual costs by approximately $500,000 to $1 million.

Inventory Optimization Impact: Inventory optimization process expected to result in a one-time reduction of approximately 100 to 200 basis points to annualized gross margins, primarily in Q3 and Q4.

SKU Rationalization Savings: SKU rationalization expected to generate $4 million to $5 million in incremental EBITDA savings.

Expense Reduction Initiative: Expected to drive an additional $7 million to $12 million of annualized savings with benefits starting in the second half of 2026.

Capital Expenditures for Fiscal 2026: Expected to be in the range of $20 million to $25 million, focusing on maintenance and productivity investments.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:How does the company plan to maintain its financial performance despite pricing changes?

A:The company assessed its regular pricing and implemented changes to optimize prices, including testing different price points, bundles, and promotional strategies. They are shifting from a high-low pricing model to a more consistent everyday value approach. Cost-cutting initiatives have been implemented, resulting in a net benefit of $7 million to $10 million to adjusted EBITDA for the year. Gross margins are expected to reduce by 100 to 150 basis points year-over-year, but the company is confident in mitigating this through cost savings and increased traffic and basket building.

Q:Is the positive momentum in January an inflection point for the business or a result of store closures?

A:The company attributes the positive momentum to a healthier base following store closures and normal weather conditions in February in certain regions. They are optimistic about the future due to an upcoming campaign promoting lower prices and high quality for the pool season.

Q:What results were observed during the pilot for new pricing strategies?

A:The company conducted tests across multiple regions and categories, observing solid increases in units per transaction (UPT) and improved conversion rates. These results, combined with the team's performance, provide confidence in the pricing strategy for the upcoming pool season.

Q:What is the long-term strategy for the company's store footprint?

A:The company is optimizing its store footprint by strategically closing stores in oversaturated areas and identifying opportunities for expansion in underserved regions. They are also enhancing their distribution center (DC) network and omnichannel capabilities, including buy online, pick up in store, and partnerships like Uber for delivery. The goal is to ensure accessibility and convenience for customers.

Q:Review of Unclear Management Responses

A:Management avoided providing specific numerical details on the lift in UPT or AOV during the pricing pilot, citing the variety of tests conducted across different categories and regions. Additionally, while they mentioned opportunities for store expansion, they did not provide concrete plans or timelines for these initiatives.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

LESL Transcript

Leslie's, Inc. (LESL) Q1 2026 Earnings Call Transcript

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Leslie's, Inc. (LESL) Q4 2025 Earnings Call Transcript

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The earnings call reveals a mixed picture: improved gross margins and inventory reduction are positive, but significant net losses and a decline in net sales are concerning. The Q&A highlights supportive supplier relations and strategic pricing investments, but lacks clarity on free cash flow and customer regain costs. Overall, the neutral sentiment reflects balanced positive and negative elements, with no clear catalyst for significant stock movement.

Leslie's, Inc. (LESL) Q3 2025 Earnings Call Transcript

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The earnings call reveals several concerning factors: competitive pricing pressures, declining equipment sales, and a forecasted sales decline. While management highlights strategic reviews and cost optimization efforts, these initiatives lack detail and immediacy. The Q&A section shows analysts' concerns about unclear guidance and traffic challenges. Despite some inventory improvements, the overall sentiment is negative due to competitive pressures, traffic issues, and uncertain recovery plans.

Leslie’s, Inc. (NASDAQ:LESL) Q1 2025 Earnings Call Transcript

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The earnings call reveals mixed financial results with slight revenue growth but increased losses, declining gross margins, and significant debt. The lack of a shareholder return plan and cautious economic outlook further weigh on sentiment. While management highlights progress in asset utilization and inventory management, concerns about competitive pressures, professional fees, and unclear guidance responses persist. The Q&A section does not provide significant positive catalysts, and the cautious revenue outlook suggests potential challenges ahead. Overall, the sentiment leans negative, indicating a likely stock price decline in the near term.

LESL Report

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